TreeHouse Foods' net sales plummet 10% in Q3

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Dive Brief:

TreeHouse Foods' net sales decreased 10% this quarter to $1.39 billion, compared to $1.55 billion for the same period last year, according to the company's most recent earnings report. The company saw volume decline 8.9% year-over-year, mainly driven by decreases in its snacks and meals divisions.

The private label manufacturer's net income for the third quarter was $5.4 million, compared to a net income of $28.8 million for the same period of the previous year. The company said in the release that it also expects headwinds going into the fourth quarter due to the impact of the hurricanes on crop sourcing and operations.

TreeHouse narrowed its fiscal guidance for the year, with adjusted earnings per fully diluted share of $2.05 to $2.25. Steve Oakland, chief executive officer and president, said in a statement that the company's work "to reinvigorate the strategic planning process, to allocate our resources according to our customers' strategies and to refine our priorities continues to advance."

Dive Insight:

Despite growing consumer acceptance of private label products, it continues to be a rough year for TreeHouse Foods. With an onslaught of executive changes, hurting revenue across segments and negative effects from hurricane season, the company's newest earnings reflected those struggles, forcing the company to narrow its guidance.

After abrupt executive turnover late last year, when former chairman Robert Aiken left after just three months, the company had to lower its guidance twice and got off to a rocky start in 2018. To replace him, the company hired Steve Oakland, former head of the U.S. food and beverage division at Smucker. He inherited the company's weak sales and struggle to improve private label customer engagement, and helming this ship hasn't been easy.

Through a program it calls TreeHouse 2020, the company is working to streamline expenses through scrutinizing business practices and getting rid of less profitable products. Throughout the new financial report, SKU rationalization is mentioned as a reason for lower sales — which has been a common theme in previous earnings reports. However, this report mentions that removing the less profitable products has contributed to a 2.3% decrease in volume — and that is not reflected in the 8.9% total volume decline.

Overall, gross profit was 16.3% in the third quarter of 2018, compared to 16.8% during that time last year. Ratcheting down the company's profitability were $3.2 million in product reimbursements from a recall last year, as well as $4.7 million to restore a snacks plant in Robersonville, North Carolina after a temporary shutdown this quarter.

Volume declines — primarily in its snacks and meals segments — led to the drop in net sales. In the snacks segment — which posted a net sales decline of 23.6% when compared to last year — the report cites heavy competition in all categories — including bars, snack nuts and trail mix — and business interruption from hurricanes. A nearly 11% drop in net sales in the meals division was also attributed to competitive pressure in ready-to-eat cereal, pasta, and dry dinner categories. However, the report attributes some of this loss to the sale of McCann's Irish Oatmeal to B&G Foods in July.

There were some bright spots this quarter. TreeHouse had 10 cents earnings per share and adjusted earnings came to 62 cents per share, which exceeded Wall Street expectations of earnings of 55 cents per share. Additionally, higher prices helped offset decreases in declining segments. Pricing was up 1.7% in the third quarter of this year compared to 2017.

Investors focused more on the negative aspects, with the company's stock tumbling as much as 8% in trading on Thursday morning.

As TreeHouse continues to face obstacles — both in its ongoing business and from natural disasters — it will likely rely on Oakland's experience at Smucker to help adjust to consumer trends and try to pull the company from its continued sales slump next year. But one thing Oakland is definitely channeling is optimism.

"Our TreeHouse 2020 and Structure to Win (SG&A) initiatives and goals, which aim to properly align our cost structure across the business, remain on track as we continue the process of defining how we can best position ourselves to capitalize on private label growth across the food and beverage landscape," he said in the report.